How a Cash Buyer Actually Prices Your House

I buy houses, so when a seller asks why my offer is so far below what they think the house is worth, I owe them a straight answer. The short version: a cash buyer starts from what the house will sell for after it's fixed, then subtracts every cost of getting it there, including a profit for the risk.

That finished number is called the after-repair value, or ARV. I don't start with what your house is worth today. I start with what it will realistically sell for once it's repaired and updated.

To get it, I look at recent sales of comparable houses in the same neighborhood that are already renovated. Not asking prices, sold prices. At this step the condition of your house matters less than the condition of the houses it will compete with once it's done.

From the finished value I subtract everything it takes to get there:

• The repairs and renovation
• Property taxes, insurance and utilities while I own it
• Lawn care and basic upkeep
• Financing and interest on the money tied up in the project
• Closing costs and title work, twice: once when I buy, once when I sell
• The real estate commission when I resell it
• Inspections and appraisals
• A cushion for what I'll find after I open the walls
• The cost of having my capital stuck in one house for months

What's left has to include a reasonable profit, because I'm the one carrying the risk. If the repairs run long or the market softens, that comes out of my pocket, not yours.

If you want to see how those costs stack up from the seller's side, our guide to what a cash offer really costs walks through it, and the cash offer calculator lets you run your own numbers.

You'll hear investors talk about paying 70% of the after-repair value, minus repairs. It's a useful sanity check. I don't treat it as a formula.

A house that needs $20,000 of work in a strong neighborhood is a completely different deal from one that needs $100,000 of work or has structural or title problems. Forcing both into the same percentage gets one of them wrong. I want the actual numbers to work on the actual house.

That also means two honest buyers can look at the same house and land on different offers. One might see a light cosmetic job. Another might see a crawlspace problem the first one missed. The offer tells you how much risk that buyer thinks they're taking on.

A cash offer can be the right move when you value speed, certainty, convenience or privacy, or when you don't want to deal with repairs and showings. Think of a house that needs more work than you can fund, a move on a deadline, or an estate the family wants settled.

Listing usually makes more sense when the house is in decent shape, you have time, and getting the highest price is what matters most. A listing with a local agent puts your house in front of retail buyers who will pay for the finished product themselves.

There isn't one right answer for every seller. The gap between a cash offer and a retail sale is real, and it pays for the repairs, the costs and the risk you're handing to the buyer. Whether that's worth it depends on what you're trying to solve. If you're weighing both, compare a cash offer against what a listing would net, and learn to spot a lowball offer before you sign anything.